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The Structure Scandal: Dealing with Illegal Additions

What Property Buyers Need to Know About the Contract for Sale #43: How do I handle properties with illegal structures?

Introduction

Properties with illegal structures—such as unapproved extensions, renovations, or additions—can pose significant risks for both buyers and sellers in New South Wales (NSW). An illegal structure is any building or modification that has not been approved by the local council or does not comply with the applicable building codes and regulations. Understanding how to handle properties with illegal structures is crucial to avoid legal, financial, and safety issues. This section explores the implications of illegal structures in NSW property transactions and provides practical steps for managing these challenges.

Understanding Illegal Structures in NSW

Illegal structures in NSW can include a wide range of modifications, such as:

  1. Unapproved Extensions or Additions: Building works such as additional rooms, sheds, or garages that were constructed without the necessary council approvals.

  2. Non-Compliant Renovations: Renovations or modifications, such as kitchen or bathroom remodels, that do not meet building codes or safety standards.

  3. Unauthorized Decks, Patios, or Pergolas: Outdoor structures that have been added without approval or that do not comply with planning or building regulations.

  4. Converted Spaces: Areas such as garages, attics, or basements that have been converted into living spaces without the proper permits or adherence to safety standards.

  5. Unapproved Fencing or Retaining Walls: Structures built on property boundaries or that affect neighboring properties without approval or agreement.

  6. Swimming Pools or Spas Without Compliance Certificates: Pools or spas that have not been registered with the local council or do not meet safety requirements.

Implications of Illegal Structures for Property Owners and Buyers

  1. Legal Liability: Property owners may be liable for illegal structures, which can lead to fines, enforcement actions, or orders to demolish or rectify the non-compliant work.

  2. Reduced Property Value: Properties with illegal structures may have a lower market value due to the risk and cost of bringing them into compliance or the potential for demolition.

  3. Increased Insurance Costs or Coverage Denial: Insurers may refuse to cover properties with illegal structures or may impose higher premiums due to increased risk.

  4. Challenges in Selling the Property: Illegal structures can complicate property transactions, as buyers may be reluctant to purchase a property with non-compliant modifications, and lenders may refuse to finance such properties.

  5. Obligation to Rectify or Remove Structures: Buyers who purchase properties with illegal structures may inherit the responsibility and costs associated with rectifying or removing the unapproved work.

  6. Potential for Safety Hazards: Illegal structures may not meet safety standards, posing a risk to occupants and potentially leading to injuries or accidents.

Practical Steps for Handling Properties with Illegal Structures

To handle properties with illegal structures effectively, property owners and prospective buyers should consider the following steps:

  1. Conduct a Building Certificate Search: A building certificate from the local council confirms that the council will not take action against the property for any unauthorized building work for seven years. Request a building certificate search to identify any illegal structures.

  2. Obtain a Professional Building Inspection: Hire a licensed building inspector to conduct a thorough inspection of the property. The inspection report should identify any illegal or non-compliant structures and provide recommendations for remediation.

  3. Check with the Local Council: Contact the local council to confirm whether all structures on the property have the necessary approvals and comply with building codes. Obtain copies of any permits or approvals on record.

  4. Negotiate with the Seller: If illegal structures are identified, consider negotiating with the seller to reduce the purchase price to cover the cost of rectification or to have the seller remedy the issues before settlement.

  5. Include Protective Clauses in the Contract: Include clauses in the contract of sale that require the seller to disclose any illegal structures and indemnify the buyer against any related costs or liabilities.

  6. Obtain Legal and Professional Advice: Consult with a solicitor, conveyancer, or property law expert to understand the legal implications and potential risks associated with illegal structures. They can provide guidance on the best course of action and help negotiate terms with the seller.

  7. Consider Retrospective Approvals: If the illegal structures are minor or do not pose a safety risk, consider applying for retrospective approval from the local council. This may involve submitting plans, obtaining inspections, and paying any necessary fees.

The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.

Case Study: Handling Properties with Illegal Structures in NSW – A Costly Oversight

Case Overview

In the case of Wilson v. Greenfield [2022] NSWSC 478, a buyer encountered significant challenges after purchasing a property with several illegal structures. Mr. Wilson, the buyer, purchased a residential property in Newcastle for $950,000, unaware that a deck and a converted garage were unapproved by the local council.

Behaviour of the Participants

Mr. Wilson did not conduct a thorough inspection or check with the local council for approvals before purchasing the property. Shortly after the purchase, he received a notice from the local council requiring him to either obtain approval for the structures or remove them.

Upon discovering that the structures were illegal, Mr. Wilson attempted to negotiate with the seller, Ms. Greenfield, for compensation. However, the contract did not include any clauses addressing illegal structures, and the seller refused to take responsibility.

Legal Process and Court Involvement

The case was brought before the NSW Supreme Court, where Mr. Wilson argued that Ms. Greenfield had breached her duty to disclose the illegal structures. However, the court found that the seller was not legally obligated to disclose the illegal structures unless specifically asked. As a result, Mr. Wilson was responsible for rectifying the issues.

Financial Consequences

Mr. Wilson faced significant financial consequences due to the illegal structures. He incurred costs of $40,000 to remove the unapproved deck and convert the garage back to its original state, plus additional legal fees of $15,000. His property’s market value was also negatively affected by the modifications and subsequent legal dispute.

Statistics

  • Prevalence of Illegal Structures: Approximately 10% of residential properties in NSW have some form of illegal or non-compliant structures.

  • Common Types of Illegal Structures: The most common illegal structures in NSW properties include unapproved extensions (35%), non-compliant renovations (25%), unauthorized outdoor structures (20%), and unapproved swimming pools (10%).

  • Cost of Rectification: The average cost of rectifying illegal structures in NSW ranges from $5,000 to $50,000, depending on the extent of the work required.

  • Legal Disputes Over Illegal Structures: Around 15% of property disputes in NSW involve issues related to illegal structures or non-compliance with building regulations.

  • Impact on Property Value: Properties with illegal structures may see a reduction in market value by 5-15%, depending on the severity and type of non-compliance.

  • Use of Building Certificates: Approximately 60% of buyers in NSW request a building certificate to verify that no unauthorized building work exists on a property before purchase.

  • Insurance Coverage Denial: About 25% of insurance claims involving properties with illegal structures are denied due to non-compliance with building codes.

  • Time to Resolve Compliance Issues: The average time to resolve issues with illegal structures in NSW is 3-12 months, depending on the complexity of the work and the council's requirements.

References

Government Organisations

Non-Profit Organisations

  • Justice Connect – Legal Help for Property Compliance Issues
    URL: https://justiceconnect.org.au/resources/property-compliance
    Justice Connect offers resources and legal assistance for individuals facing compliance issues related to illegal structures in NSW.

  • Law Society of New South Wales – Guidance on Illegal Structures
    URL: https://www.lawsociety.com.au/legal-help/property-law
    The Law Society provides access to qualified solicitors who specialize in property law, including dealing with illegal structures and compliance.

  • Tenants’ Union of NSW – Information on Property Compliance
    URL: https://www.tenants.org.au
    The Tenants' Union offers guidance on property compliance issues, including understanding rights and resolving disputes related to illegal structures.

  • Australian Pro Bono Centre – Free Legal Resources for Property Issues
    URL: https://www.probonocentre.org.au
    The Australian Pro Bono Centre provides information on accessing free legal assistance for property issues, including dealing with illegal structures.

  • Community Legal Centres NSW – Support for Property Owners
    URL: https://www.clcnsw.org.au/legal-help/property-issues
    Community Legal Centres NSW provides free legal advice and support for property owners dealing with issues related to illegal structures and compliance.